Castle Biosciences, Inc.

Good afternoon and welcome to CASEL Biosciences' fourth quarter and full year 2024 conference call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and introductions, followed by a question and answer session. I would like to turn the call over to Camilla Zuccaro, Vice President of Investor Relations and Corporate Affairs. Please go ahead.

Thank you, Operator. Good afternoon, everyone. Welcome to CASEL Biosciences' fourth quarter and full year 2024 results conference call. Joining me today is CASEL's founder, president, and chief executive officer, Derek Massold, and chief financial officer, Frank Stokes. Information recorded on this call speaks only as of today, February 27, 2025. Therefore, if you are listening to the replay or reading the transcript of this call, any time-sensitive information may no longer be accurate. A recording of today's call will be available on the investor relations page of the company's website for approximately three weeks following the conclusion of the call. Before we begin, I would like to remind you that some of the statements made today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our financial outlook, TAM, intended use populations, and similar items referenced in our earnings release issued today, and statements containing projections regarding future events or our future financial or operational results and performance, including our anticipated 2025 total revenue, our expectations regarding reimbursement for our products, including with regard to our decision DX FCC test, opportunities for growth, impacts of seasonality and other trends, the size and structure of our commercial teams, the timing of targeted milestones, and the impact of our investment in growth initiatives, including our ability to achieve long-term growth and drive stockholder value. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties. And there can be no assurances that the results contemplated in these statements will be realized. A number of factors and risks could cause actual results to differ materially from those contained in these forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's annual report on Form 10-K for the year ended December 31, 2024 under the heading Risk Factors and in the company's other documents and reports filed or to be filed with the Securities and Exchange Commission. These forward-looking statements speak only as of today, and we assume no obligation to update or revise these forward-looking statements as circumstances change. In addition, some of the information discussed today includes non-GAAP financial measures such as adjusted revenue, adjusted gross margin, and adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles in the United States, or GAAP. These non-GAAP items should be used in addition to and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information in assessing our revenue and operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the investor relations page of the company's website. I will now turn the call over to Derek.

Thank you, Camilla, and good afternoon, everyone. 2024 was another exceptional year for CASEL, and I'm extremely proud of the strong execution by our entire team. With fourth quarter revenue of $86.3 million, we grew revenue by 51% year-over-year to $332.1 million for the full year of 2024. Additionally, total test report volume grew by 36% in 2024 compared to 2023. Further, as of December 31st, 2024, the company's cash, cash equivalent, and marketable investment securities totaled $293.1 million, a $50 million increase over December 31st, 2023, which we believe will enable us to continue executing on our growth initiatives. Today, I will walk you through business highlights in the fourth quarter and full year 2024 and then Frank will provide additional financial highlights before we turn to your questions. Starting with our core dermatology business, we delivered growth of 17% for combined DecisionDx melanoma and DecisionDx test in CC over 2023. Our dermatologic commercial team supports the promotion of both of these tests. Therefore, we look at the growth of these tests combined as the appropriate litmus test for our dermatologic portfolio's performance. For DecisionDx melanoma specifically, We delivered 36,008 test reports in 2024, an 8% increase over 2023. After correcting for underreporting, we believe the addressable market comprises approximately 130,000 patients, meaning that we exited 2024 with roughly 28% market penetration. We're pleased with our volume growth for 2024, and I would like to provide some additional context specifically for our fourth quarter volume for decision DX melanoma. We saw typical seasonality, with the fourth quarter historically having the fewest working days compared to the other three quarters. Specifically in the fourth quarter of 2024, we had two fewer working days than in the third quarter of 2024. Further, the overlap of Christmas and Hanukkah in December led to additional practice closures as compared to 2023. As a reminder, our decision-based melanoma test results provide clinicians and patients with actionable results aiming at answering two questions. The first being, does this patient have a likelihood of a positive septal lift node that is below 5%? 5% has been the traditional guideline threshold for avoiding versus offering a septal lift node biopsy surgical procedure. We have, in multiple prospective and retrospective studies, consistently shown that our decision DX melanoma test is able to identify patients who have a less than 5% rate of a positive sentinel lymph node biopsy. We've also shown that patients who avoided a sentinel lymph biopsy surgical procedure have excellent long-term outcomes. This data consistency sets our decision DX melanoma test apart. The second question our test results aim to answer is what is the five-year likelihood of this patient having a recurrence? Again, we have shown in multiple prospective and retrospective studies that our DecisionDX melanoma test is an independent predictor of recurrence, that clinicians use our test results to assist with their decisions as to whether to escalate or deescalate treatment pathways, and that clinically tested patients show improved survival compared to patients who did not receive our DecisionDX melanoma test as part of their clinical care. We continue to develop evidence to support our DecisionDX melanoma test, and currently we have more than 3,000 patients enrolled in clinical studies. We believe that the fact that we have been able to consistently demonstrate that we are adding independent value to traditional staging factors sets our DCDX melanoma test apart. These two uses of our test impact patients across all stages of localized melanoma, and we believe we have significant room for further penetration across clinical stages. Further, based on our 2024 data for this test, our orders generally align with the SEER data of incidence by T-stage patients diagnosed with melanoma. Despite having launched DecisionDx Melanoma several years back, we continue to see new clinicians ordering our tests for the very first time. Specifically in 2024, we had 1,816 clinicians order DecisionDx Melanoma for the very first time. This was similar to the number of first-time ordering clinicians in 2023. So while some existing customers may have settled into where they see the sweet spot for our tests, we continue to have strong interest in usage that we need to then turn into further adoption. We currently anticipate mid to high single-digit volume growth for the full year 2025 or the 2024, with the first quarter 2025 being flat or slightly down compared to the fourth quarter 2024, in line with typical seasonality and our expectations. Moving on to our decision of the SBCC test, we continue to see strong test report volume momentum with 16,348 test reports delivered in 2024, an increase of 43% compared to 2023. Further, we saw 1,510 new ordered clinicians for our DecisionDx SCC test in 2024. We believe that the addressable market of patients diagnosed with cutaneous squamous cell sarcinoma and the presence of one or more clinical or pathologic risk factors is approximately 200,000 patients. meaning that we exit 2024 with roughly 8% marker penetration. As a reminder, our DecisionEX SCC test provides two actual test results. The first is predicting the risk of metastasis, and the second is predicting response to adjuvant radiation therapy. These uses are supported by 22 peer-reviewed publications since the launch of the test, including six studies published in 2024. Two of which represented the largest and the second-largest studies ever published that evaluate the effectiveness of adjuvant radiation therapy in patients with cutaneous squamous cell carcinoma. Now, let's turn to reimbursement. In January 2025, Novatos, the Medicare administrative contract with jurisdiction over a laboratory in Pittsburgh, finalized the Local Coverage Determination, or LCD. That included a language signifying non-coverage by Medicare, which is in the SSCC. The LCD effective date, originally in February 23, 2025, was subsequently extended to April 24, 2025. To the LCD becoming effective as is, we would not anticipate receiving Medicare reimbursement for decision ex-SCC tests performed on or after April 24, 2025. We will be disappointed with the impact on patient care if we lose Medicare coverage, given the strength of the evidence in decision ex-SCC's ability to predict the risk of metastasis impact in treatment pathways and the ability to predict responsiveness to adjuvant radiation therapy. I will remind you that a cost effectiveness article that was published in January 2024 showed that using DecisionDx SCC to guide adjuvant radiation therapy physicians could result in substantial savings to the Medicare program of up to $972 million per year. Let's turn to our tissue cipher test, our spatial omics test designed to determine a patient's individual risk of progression from varicose esophagus to high-grade dysplasia or esophageal cancer. We have published multiple performance studies showing that tissue cipher consistently outperforms traditional clinical and pathologic factors, providing physicians with an actionable assessment of the likelihood of a patient's five-year risk of progression to high-grade dysplasia or esophageal cancer. As such, we are thrilled with the positive reception TissueCypher has received from the gastroenterology community. In fact, we delivered 20,956 TissueCypher test reports in 2024 compared to 9,123, representing 130% growth. And for the year ended December 2024, we had 1,234 new ordering clinicians for the TissueCypher test. Importantly, TissueCypher achieved a significant milestone in 2024, surpassing 25,000 test reports delivered since we acquired the test at the end of 2021, suggesting more clinicians may be recognizing its value. I'd also remind you that in 2024, the American Gastroenterological Association, or AGA, released new clinical practice guidelines in endoscopic eradication therapy for Barrett's esophagus, stating that it can be effectively treated with endoscopic procedures like ablation, but noting identifying high-risk patients is crucial. Importantly, tissue cipher was highlighted as the first prognostic assay capable of identifying patients with Barrett's esophagus at risk of progressing to high-grade dysplasia or esophageal cancer. This recognition by the AGA reinforces tissue cipher's role in providing personalized and clinically validated risk stratification. helping clinicians better manage patients with varicose esophagus. As you look at 2025 and beyond, the growth drivers we expect for tissue cyber include, one, the commercial team roughly doubling in size during the first half of 2024, with continued expansion throughout the second half of 2024 and the first few months of 2025. Two, the unmet clinical need and value of our tests being further accepted by clinicians. And three, a strong focus on education and awareness. We believe that the addressable market of patients diagnosed with Barrett's esophagus with non-dysplastic, indefinite, or low-grade dysplasia is approximately 415,000 patients per year in the U.S., meaning that we exited 2024 with roughly 5% market penetration. We believe in our ability to maintain strong momentum for future growth and currently expect tissue cycle volume to be significant for the full year 2025 compared to 2024 although not as high as 130% we delivered in 2024 compared to 2023. Turning to our mental health business, due to changes in the market and our focus on allocating resources efficiently on profitable growth, in late 2024, we revised our commercial strategy for our IGENX test, reallocating resources to inside sales and non-personal promotions. In December 2024, we observed month-to-month decreases in IGENX test reports which persisted throughout year-end 2024. We continue to offer our IGNX tests and monitor performance. However, in 2025, we expect test report volumes and net revenues will continue to decrease, and the long-term performance of this test remains uncertain. And with that, I'll now turn the call over to Frank.